Understanding the Nominal Value of a Share: How to Differentiate it from the Market Price and Book Value

When you start your journey as an investor, one of the first concepts you encounter is precisely what is the nominal value of a share. However, this term is often confused with two others: the quotation price and the book value. In this guide, we break down these three metrics, their origins, their actual functions, and when to apply each in your investment strategy.

Three Ways to Measure the Same Asset: Explained Without Complexity

Imagine you buy a share. At what price? Based on what criterion do you decide if it is expensive or cheap? The answer depends on which of these three indicators you use as a reference.

The starting point: nominal value of a share

When a company issues shares for the first time, it establishes an initial value. This is the nominal value. It is calculated very simply: you take the total capital invested in the company and divide it by the number of issued shares.

Formula: Nominal Value = Share Capital ÷ Total Number of Shares

Let’s look at a practical example: A company called TECHVISION S.A. contributes €4,200,000 in capital and issues 350,000 shares. The nominal value results in: €4,200,000 ÷ 350,000 = €12 per share.

This nominal value has a particularity: it is static. It is defined at the time of the IPO and rarely changes. That’s why its usefulness in equity investing is limited, although it remains relevant in fixed-income instruments like bonds and obligations.

What accounting reveals: book value or carrying value

The (book value), also called net book value(, offers a different perspective. It reflects what is actually inside the company from an accounting point of view.

It is obtained by subtracting liabilities )what the company owes( from assets )what it owns(, and dividing the result by the number of shares outstanding.

Formula: Book Value = )Assets - Liabilities( ÷ Number of Shares

Example: The company INDUSTRIAL PLUS owns assets worth €9,800,000, liabilities of €3,100,000, with 820,000 shares issued.

Book Value = )€9,800,000 - €3,100,000( ÷ 820,000 = €8.17 per share

This indicator is especially valuable for value investors. Warren Buffett popularized this method: look for companies with solid balance sheets trading below their book value.

Market reality: quotation price or market value

While the previous two have origins in fixed data, market value is dynamic. It represents the price at which shares are actually bought and sold at any given moment. It is obtained by dividing the market capitalization by the number of shares.

Formula: Market Value = Market Capitalization ÷ Number of Shares

Example: The company GLOBAL TRADE has a market capitalization of €5,320 million and 2,640,000 shares outstanding.

Market Value = €5,320,000,000 ÷ 2,640,000 = €2,015.15 per share

This is where real trading occurs. The price rises when buy orders predominate; it falls when sell orders are more numerous. It is influenced by expectations, news, economic cycles, and market sentiment.

What Information Does Each Provide?

The nominal value as a historical reference

The nominal value of a share mainly functions as a historical anchor point. It tells you: “This is where it all started.” But in daily operations, it has little impact. Its true relevance appears in convertible instruments or in specific legal contexts.

The book value: the magnifying glass on corporate health

This indicator is your window into the company’s financial reality. If the book value is high and well-supported, it suggests a company with solid assets. If it is low or tending to worsen, it indicates potential problems.

Value investors use the Price/Book Ratio )P/VC( to identify opportunities. A low P/VC indicates the market values the company below its book value: a possible bargain. A high P/VC suggests overvaluation.

However, this method has clear limitations: it is unreliable with tech companies )many of their assets are intangible and do not appear on the books( and with small companies.

Market value: what you actually pay

It is the price you see on your trading screen. It does not tell you if it is fair or excessive; it only shows what market participants are willing to pay right now. To determine if that price is reasonable, you need other indicators like the PER )price-earnings ratio( or in-depth fundamental analysis.

Practical Applications: When to Use Each Metric

Case 1: Looking to reposition in the energy sector

You have two main options and want to choose the best based on relative valuation. You compare the P/VC of both:

• Company A: P/VC = 0.85
• Company B: P/VC = 1.20

Company A trades cheaper relative to its book value. According to value logic, it would be the more attractive option from a technical valuation perspective. But this decision should be complemented with analysis of debt, cash flows, and sector outlook.

Case 2: Taking advantage of price drops with limit orders

The market drops sharply. A stock that was trading at €145 falls to €127. You think it could fall further. You place a buy order with a limit at €120. Here, you use the market value )real price( as an operational reference. It will only execute if that level is exactly reached.

Case 3: Assessing if a tech company is expensive or cheap

Its book value suggests a high P/VC )2.5(, indicating accounting overvaluation. But its patents, software, and data )intangible assets( are not on the books. The nominal value was originally €5, and today it trades at €280. In this case, the book value is insufficient. You need analysis of future growth, competitive position, and addressable market.

Limitations: Why None Are Perfect

Limitations of the nominal value

Its main weakness is its uselessness. Once the share is issued, that initial value quickly loses relevance. It is only useful as a historical reference or in instruments with maturity, not for current operational decisions.

Limitations of the book value

It works better with traditional )manufacturers, profitable( companies than with tech firms. Startups and software companies see this indicator distorted because their most valuable assets are intangible. Additionally, creative accounting )legal manipulation of figures( can distort this value. It is not infallible.

Limitations of market value

It is deeply volatile and irrational in the short term. Changes in interest rates, geopolitical risk news, speculative trends, or sector events can spike or plunge it without fundamental justification. Sometimes, the market completely disconnects from the company’s economic reality. It reinforces collective biases: buying what goes up because it goes up )euphoria( and selling what falls because it falls )panic(.

Comparative Summary

The Final Balance

Each metric answers different questions. The nominal value is historical. The book value is diagnostic. The market value is operational.

There is no “best” universal valuation. An experienced investor combines all three: observes the nominal value for context, examines the book value for fundamentals, and uses the market value for execution. Combining them reduces risks and sharpens decisions.

The key is to understand what each measures and not to confuse their purposes. A “cheap” stock according to book value but with upward price momentum, or expensive according to accounting metrics but with exceptional growth prospects, require contextual judgments that only experience and continuous education develop.